Franchise disclosure document

What a franchise disclosure document is

A franchise disclosure document is the long document a franchisor must give anyone thinking of buying a franchise. It is required by the Federal Trade Commission’s Franchise Rule, which sets out what it must contain and in what order, and many states add their own requirements. Most run to a few hundred pages, with the franchise agreement and the franchisor’s financial statements attached at the end.

Its purpose is to let you compare brands on the same facts before you commit. It doesn’t mean a government agency has approved the brand or checked its claims, even in states that register franchise sales. Every brand page on this site is a summary of its latest filing, and the figures below are what the typical brand discloses.

When you get it

The franchisor must give you the document at least 14 calendar days before you sign a binding agreement or pay any money. If it later changes the agreement in a material way, you get the final version at least seven days before signing. Most brands send it electronically after an application or first call. You sign a receipt page with the date, which starts the 14 days.

The 23 sections and what they tell you

Every disclosure document follows the same order. The list below says what each section covers and, where this site tracks it, what the typical brand discloses.

1. The franchisor and any parents, predecessors and affiliates. Who you are contracting with, how long it has franchised and what the business is.
2. Business experience. Five years of work history for the directors and officers.
3. Litigation. Lawsuits and regulatory actions that matter to buyers. Across brands: 39% of brands disclose some.
4. Bankruptcy. Bankruptcies in the last ten years at the franchisor, parents, predecessors and key people. Across brands: 203 brands disclose one.
5. Initial fees. The franchise fee and anything else paid before opening. Across brands: typical fee $40K.
6. Other fees. Royalties, marketing fund, technology, training, transfer and renewal fees. Across brands: typical royalty 6% of sales.
7. Estimated initial investment. The cost to open, line by line, as a low and high estimate. Across brands: typical $222K–$477K.
8. Restrictions on sources of products and services. Required suppliers, and any rebates the franchisor earns from them.
9. Franchisee's obligations. A cross-reference table of what you must do, and where in the agreement.
10. Financing. Any financing the franchisor or an affiliate offers, and its terms. Across brands: 14% offer some.
11. Franchisor's assistance, advertising, computer systems and training. What help you get before and after opening, the marketing fund and the training program. Across brands: typical training 71 hours.
12. Territory. Whether you get an exclusive area, and its exceptions. Across brands: 37% protect one.
13. Trademarks. Whether the brand's main marks are registered, and any disputes over them.
14. Patents, copyrights and proprietary information. Recipes, manuals and software you may use but don't own.
15. Obligation to participate in the operation. Whether you must run the business yourself or may hire a manager. Across brands: 27% require the owner to.
16. Restrictions on what you may sell. Products and services you must offer and may not.
17. Renewal, termination, transfer and dispute resolution. The term, how it can end, how you can sell and where disputes are heard. Across brands: typical term 10 years.
18. Public figures. Any celebrity paid to promote the brand, and what they are paid.
19. Earnings figures. Any sales, profit or other earnings figures for existing locations, optional. Across brands: 64% give some.
20. Locations and franchisee information. Locations by year and state, openings, closures and transfers, and contact lists of current and former owners. Across brands: typical 3.0% exit a year.
21. Financial statements. The franchisor's audited accounts. Across brands: franchisor revenue and net income on 1,018 brand pages.
22. Contracts. Copies of the franchise agreement and every other contract you sign.
23. Receipts. The page you sign to confirm the date you received the document.

Costs and fees

Three sections set out the money. The initial fees section gives the franchise fee, typically $40K. The other fees section lists everything you pay after opening, starting with the royalty, typically 6% of sales, and the marketing fund; 607 brands charge a flat or tiered royalty instead of one percentage. The estimated initial investment gives the cost to open as a low and high figure, line by line: the typical brand estimates $222K–$477K.

Read the cost table’s notes, which say what each line assumes, and check whether it includes buying or building the property, which many restaurant brands leave out. The cost guide and the fees and royalties guide compare these across brands.

Earnings figures

The earnings section is the one buyers turn to first, and the one whose figures need the most care. A franchisor may include figures such as average sales, median sales or profit for a group of its locations, but doesn’t have to. Of the brands here, 64% give some figures; 1,053 give an average or median yearly sales per location that can be compared across brands, and only 48 give a profit figure for the same locations.

Read the notes on every figure: which locations are included, for which year, whether it is an average or a median, and how many locations beat it. A brand that reports only its best locations, or only company-run ones, can make a typical location look better than it is. The most profitable franchises ranking lists the published sales.

Locations and owners

The locations section is the best evidence in the document. Its tables give three years of franchised and company-owned locations, openings, transfers, closures, terminations, non-renewals and buy-backs, plus locations by state and projected openings. The typical brand loses 3.0% of its franchised locations a year to closures, terminations and non-renewals; the failure rates guide ranks every brand.

The same section lists current owners and every owner who left in the last year, with contact details. Call them. Former owners are the most candid people you will speak to, and the list tells you how many left, which the franchisor’s sales team won’t.

Lawsuits, bankruptcy and the franchisor’s finances

About 39% of brands disclose at least one lawsuit, and 203 disclose a bankruptcy at the franchisor, a predecessor, a parent or a key person; the lawsuits guide shows which, and how to read them. The financial statements at the back show whether the franchisor itself is profitable and how much it depends on new franchise sales. A franchisor losing money may cut support or raise fees, and one that earns mainly from selling new franchises rather than royalties has less reason to care how existing owners do.

How to read a franchise disclosure document

Start with the cost to open, the fees and the earnings figures, so you know whether the numbers can work. Then read the locations tables for growth and closures, and call owners from both lists. Read the litigation section for patterns, then the agreement itself: term, territory, renewal, transfer, termination and the non-compete. The agreement terms guide covers those clauses.

Compare two or three brands side by side, section by section, before choosing one; the compare tool lines up the main figures. Then have a franchise lawyer review the agreement, and follow the steps to buying a franchise from there.